By KRYSTLE CHOW
Published in the Ottawa Business Journal newspaper and website.
Oct. 1, 2007 (Oct. 3 on OttawaBusinessJournal.com)

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Analysts bullish as company comes out of stealth mode

Virtual machine life cycle management systems firm Embotics only had its coming-out party earlier this month, and its flagship V-Commander product is still in its beta testing stage.

However, the company definitely wasn’t idly biding its time while in stealth mode – in December it attracted an undisclosed amount of funding and it’s already seeing product revenues. It’s put its product out for testing across several companies in the pharmaceutical, telecommunications, Internet hosting, financial services and manufacturing sectors.

The company has a relatively simple proposition for a complicated technology that’s become increasingly important for large firms. What happens with virtualization is
that companies can now easily set up new virtual servers – each of which houses a copy of an application program – without complex hardware configurations.

The problem with the ease of creating those new servers, however, is how to manage them, which is what V-Commander does.

“With the products of companies like Microsoft and VMWare, all you have to do is click a button and create a new server, and that leads to what is called ‘virtual machine (VM) sprawl,'” says Embotics CEO Jay Litkey. “There’s exponential growth in the number of servers since you no longer have to buy a physical computer (to deploy a new server), and that’s a bad thing for enterprises when they can’t know who did what and what’s happening.”

Mr. Litkey says the ease of the virtualization process has made it hard for large companies to keep track of how many VMs are out there on their networks, and how many were created by authorized people. This could raise compliance issues and difficulties in determining whether the company has enough licences to cover all copies of the applications.

V-Commander helps companies avoid these problems by automatically documenting VMs when they are created and keeping an electronic paper trail for each server. The product also allows companies to set automated controls to block VMs that don’t meet certain criteria, such as being started by a designated person.

“What (the top companies) are telling us is that we’ve got something unique of a different value, and that we’ve got no direct competition for our first product,” Mr. Litkey says.

This is an opinion shared by several industry analysts.

“They are one of the first on the block to be doing this sort of thing; they’ve simplified how you manage the deployment process, instead of deploying VMs willy-nilly and seeing the infrastructure trending towards chaos,” says Jasmine Noel of Ptak, Noel & Associates LLC. “People are starting to go, ‘Argh! There’s too many people randomly deploying things and we don’t know where they are. We need to put processes around VM deployment, how do we do that?’ Clients are learning they have to spend money on (infrastructure management).”

Ms. Noel notes that infrastructure management markets tend to lag behind those of infrastructure deployment, which means companies like Embotics might get off to a slow start and then quickly pick up once everyone catches on to the need.

“Embotics has a real good story with the right kind of method, since they offer security and identification of VMs throughout the entire life cycle of the server. Nobody else has all those pieces,” says Mark Bowker of Enterprise Strategy Group. “They’re talking about it and the industry wants to see the technology, but no one is providing management for that whole life cycle.”

However, Mr. Litkey says Embotics won’t be alone in the market for long, which is why he’s playing his cards close to his chest. It’s also why the company took more than a year to come out of stealth mode.

Besides the competitive benefits of not letting too many good ideas out of the bag too early, the company is also poised at just the right place to take advantage of the “hockey-stick curve” in demand, says Ms. Noel.

“I think it’s smart that they waited this long to come out of stealth mode,” she says.

“They could have come out two or three years ago and their product would have languished on the shelf since there would have been no operational budget for it yet at the time. It’s all about timing.”

The stakes are high, with the market for V-Commander estimated at $90 million today, Mr. Litkey says. An IDC report estimates that the total VM software market will grow to more than $1.8 billion by 2009, from $560 million in 2005.

Most of that market is dominated by Palo Alto, Calif.-based VMWare, which had revenues of $310 million in 2005. That’s good news right now for Embotics, which is a partner of VMWare as well as other large players such as Microsoft and PlateSpin.

But VMWare recently bought Swiss company Dune Technologies, which could potentially lead to the virtualization leader ditching its partners – including Embotics – in favour of building its own management capabilities.

As well, Mr. Litkey says there are a number of startups which Embotics is starting to watch.

For now, though, the company is in a good place, having presented at the Ottawa Venture Technology Summit last week with plans to raise $8 million.

It’s not profitable yet, but Mr. Litkey notes that Embotics has been “in revenues” for more than a year, has doubled its workforce since its March 2006 inception, and it already has a full management team in place.

“The indication is that we’re in a good market, doing good things in which people see value. The segments we’re doing trials in right now are not easy to crack, and to be in there with real live product trials is quite an accomplishment,” he adds.